Packaging Corp Of America To Buy Smaller Peer Boise In $2 Bln Deal

(RTTNews) - Containerboard and corrugated boxes maker Packaging Corp. of America (PKG) agreed Monday to acquire smaller peer Boise, Inc. (BZ) for $12.55 per share in an all-cash deal valued at $1.995 billion, including $714 million of outstanding debt. The deal, which is expected to close in the fourth quarter of 2013, will boost Packaging Corp.'s or PCA, containerboard production capacity.

"The acquisition is an excellent fit, both geographically and strategically, with unique and substantial synergies. It provides the containerboard that PCA needs to support our strong corrugated products growth. The DeRidder containerboard mill is low cost, located in a very good wood basket and, after the D2 machine conversion, provides almost one million tons of primarily lightweight containerboard, PCA Executive Chairman Paul Stecko said.

The offer price of $12.55 represents a 26 percent premium over Boise's closing share price of $9.96 on Friday. Following the news, Boise shares are soaring 28 percent in pre-market activity, indicating that the shareholders expected a higher valuation for the company. PCA shares are also up 12 percent.

The boards of directors of both companies have unanimously approved the deal. Boise's board has thoroughly evaluated a broad range of strategic options, and it believes that this deal provides the best value for shareholders. The Boise board expects to recommend that shareholders tender their shares into the offer.

According to the terms of the deal, an affiliate of PCA is required to commence a tender offer within 10 calendar days to acquire all outstanding shares of Boise's common stock for $12.55 per share in cash. The tender will remain open for at least 20 business days after launch, with any shares not tendered in the offer until then to be acquired in a second step merger at the same cash price.

Boise, Idaho-based Boise makes packaging products under the Boise, Hexacomb, and Tharco brands in plants across the U.S. and in Canada, Mexico, France, Spain, and the Netherlands. It makes paper in U.S. mills in the South, Midwest, and West. It is also the third-largest North American manufacturer of uncoated freesheet paper, with a focus on office papers.

Lake Forest, Illinois-based PCA expects to generate pre-tax of about $105 million, with synergies being fully realized within three years of closing. Meanwhile, the deal is expected to be accretive to earnings immediately.

The synergies are being anticipated from mill grade optimization, sales mix and cost reductions, lower transportation costs, corrugated products optimization, and SG&A cost reductions.

The combined entity generated $5.5 billion in sales in the last twelve months, with combined packaging business generating 75 percent of sales and the remainder being generated by Boise's paper business.

The deal will see PCA's containerboard capacity increasing 42 percent to 3.7 million tons from its current level of 2.6 million tons. This includes contribution from the announced expansion of paper machine number 2 at Boise'sDeRidder mill.

Meanwhile, PCA's corrugated products volume will increase by about 30 percent, with market presence to expand into the Pacific Northwest.

"The combined company is expected to generate strong financial results and strong cash flow which will be used to pay down debt as well as to continue to return value to our shareholders," Stecko added.

PCA CEO stated, "This acquisition allows us to apply our operating and sales expertise across a much larger system and provides significant growth potential."

PKG closed Friday's regular trading session at $54.55, up $0.17 on a volume of 0.47 million shares, and BZ closed at $9.96, up $0.21 on a volume of 0.95 million shares.